Posted by on July 26, 2017 11:03 pm
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Categories: Alliance for American Manufacturing Brazil Business China donald trump Economy federal government Foxconn Foxconn Technology Group Greece headlines India manufacturing Mexico Portugal process control Scott Walker southeastern Wisconsin Terry Gou Trump Administration Walker administration Washington D.C. white house

To much fanfare, President Donald Trump on Wednesday announced that Taiwanese electronics giant Foxconn, best known for making the iPhone, will build a new plant producing LCD panels in Wisconsin that will bring thousands of jobs to the state. On the surface it’s a great deal: in what’s being called the largest economic development project in state history, Foxconn plans to build a $10 billion plant that will eventually employ as many as 13,000 people, according to the White House and Gov. Scott Walker.

“It starts today with this investment in Wisconsin,” Foxconn chairman Terry Gou said at announcement in Washington D.C. on Wednesday.

The plant is expected to open in 2020 and be on a 20 million square-foot campus on at least 1,000 acres, a campus Walker’s office has dubbed “Wisconn Valley” according to the Wisconsin State Journal.  The plant could be the first of several facilities the company intends to build in the United States and will start with 3,000 employees, a staff that could eventually grow by 10,000.

Furthermore, Walker’s office projected the project would create at least 22,000 “indirect and induced jobs” throughout Wisconsin and will generate an estimated $181 million in state and local tax revenues annually, including $60 million in local property taxes.

In making the announcement, Trump was near-euphoric: “This is a great day for American workers and manufacturers and for everybody who believes in the concept and the label ’Made in the USA,” the president said. “The construction of this facility represents the return of LCD electronics and electronic manufacturing to the United States, the country that we love, that’s where we want our jobs,” he continued.

Trump gave himself credit for the deal: “To make such an incredible investment, [Foxconn Chairman Terry] Gou put his faith and confidence in the future of the American economy,” the president said. “In other words, If I didn’t get elected, he definitely would not be spending $10 billion.”

The Foxconn chairman validated Trump’s boast, crediting the president with spurring the investment: “I met you three times. Each time you emphasized the importance of manufacturing in America and providing high-skilled jobs for American workers,” Gou said about Trump. He also explained why here, and why now: “Why do it here? TV was invented in America, yet America does not have a single LCD factory. We are going to change that. And it starts today with this investment in Wisconsin. This is a win-win-win strategy,” Gou said, adding he is “committed to great, great jobs for American people.”

According to the State Journal, the deal with Foxconn was “a culmination of many months of discussion” between a team of Republicans from the White House, Wisconsin and Foxconn officials, a White House official said. The negotiations included Trump, his senior adviser and son-in-law Jared Kushner, chief-of-staff Reince Priebus, Ryan and Walker.

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And while superficially the agreement is a slam dunk for both Wisconsin, and US workers – especially in a high-tech sector that has over the years shifted to China – reading between the lines of the deal makes one wonder who is getting the best deal. 

While a White House official said there will be no new federal programs to provide new incentives for Foxconn to build in Wisconsin, he added that the company could be eligible for existing incentives offered by the federal government.

What subsidies? The “incentive package” contemplated as part of the Foxconn deal will total $3 billion over 15 years, including $1.5 billion in state income tax credits for job creation; up to $1.35 billion in state income tax credits for capital investment and up to $150 million for the sales and use tax exemption. In other words, just over $230,000 for each new job that Foxconn may (or may not) create.

To some this is a problem: “The bottom line is this company has a concerning track record of big announcements with little follow through. Given the lack of details, I’m skeptical about this announcement and we will have to see if there is a legislative appetite for a $1 to $3 billion corporate welfare package,” Sen. Jennifer Shilling, D-La Crosse, said, referring to the company’s 2013 announced plans to build in Pennsylvania that never materialized. Fitchburg Democratic Rep. Jimmy Anderson blasted the deal as a multibillion-dollar handout” and said “taxpayers should not be subsidizing private corporations at the expense of our children, school and roads.”

Yet not all Democrats blasted the deal: lawmakers from the region where Foxconn is expected to locate were more receptive to the news. Sen. Robert Wirch, D-Pleasant Prairie, called the news “a great thing for southeastern Wisconsin;” Barca hailed it as “an exciting opportunity.” Barca, D-Kenosha, said he met with Foxconn officials earlier this month and has been in touch with the Walker administration about its discussions with the company. “I’ve heard that they are family-supporting jobs and that the wages, on average, are actually more on the high end of the spectrum,” Barca said.

However, besides one’s view on incentives – which ultimately have to be funded somehow by taxpayers – there is another potential problem: this is not the first time Foxconn has come out with bombastic promises to create US jobs, only to quietly reneg on its pledge.

In 2013, Foxconn said it would spend $30 million to build a plant in Harrisburg, Pennsylvania. Then-Gov. Tom Corbett (R) personally helped craft the deal and hailed the plan in a statement, saying “Pennsylvania is once again leading the way through integrating technology into manufacturing.” The plant didn’t get built. The next year, Foxconn announced a $1 billion investment in Indonesia. The year after that, $5 billion in India. Though the announcements caused many excited headlines, the ambitious plans never came to fruition, according to an investigation published in March.

Scott Paul, president of the Alliance for American Manufacturing, a group that advocates for favorable manufacturing trade policies, applauded the Trump administration for trying to bring consumer electronics manufacturing to the U.S., but said he’s skeptical of Wednesday’s news. “I’ll be excited about this Foxconn announcement when I see actual paychecks going to workers in Wisconsin,” Paul said.

Furthermore, Gou has regularly made noise about bringing a Foxconn factory to the United States. Earlier this year, the company said it was considering several states for a new plant that would make digital display panels. An administration official said the deal had been in the works for months, with talks being led by Trump son-in-law Jared Kushner. At a speech in Wisconsin in June, Trump hinted an announcement could be on the horizon. “Just backstage, we were negotiating with a major, major, incredible manufacturer of phones and computers and televisions, and I think they’re going to give the governor a very happy surprise very soon,” Trump said.

Whether or not the deal is real or just another mirage, remains to be seen, but another question involves relative wages: it is clear that Foxconn would not pursue US expansion if the economics were not right. Surely the generous incentives were a key part of the calculus, but from a bigger picture perspective, one wonders if – in at least one industry – the US has not reached wage parity with China.

As Forbes recently reported, “average wages in China’s manufacturing sector have soared above those in countries such as Brazil and Mexico and are fast catching up with Greece and Portugal after a decade of breakneck growth that has seen Chinese pay packets treble.” That’s average: wages for highly skilled sectors such as LCD production are far greater; in fact, it is distinctly possible that they are now higher in China than equivalent all-in comp (with incentives) in the US, especially for a company like Foxconn.

Foxconn factory

Recall that this is the same Foxconn that not so long ago Foxconn replaced 60,000 factory workers with robots due to rising labor costs.

In a statement to the BBC, Foxconn Technology Group confirmed that it was automating “many of the manufacturing tasks associated with our operations” but denied that it meant long-term job losses.

“We are applying robotics engineering and other innovative manufacturing technologies to replace repetitive tasks previously done by employees, and through training, also enable our employees to focus on higher value-added elements in the manufacturing process, such as research and development, process control and quality control.

“We will continue to harness automation and manpower in our manufacturing operations, and we expect to maintain our significant workforce in China.”

… and perhaps add to it in the US, with the proper amount of sweeteners of course. Because if the wage equivalency tipping point between high-tech jobs in China and the US has indeed been reached (or is close to it) the consequences for both the Chinese and US economy would be dramatic. If that is the case, Foxconn’s first foray into the US may be just the beginning.

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